Why I predict a 55% nominal price drop in North County

[SD Realtor]

I recently closed an escrow in a small complex called Casa Del Rey in Carlsbad. It is at 2251 Altisma Way and is off of Via Alicante and has an awesome view of the La Costa club and the ocean. The condos are all 2/2s. Note all units in this complex have the same floorplan. The solds are as follows from the MLS:

Close date – 7/13/06 391k #103
Close date – 3/30/05 424,750k #102
Close date – 5/24/05 405k #107
Close date – 7/13/04 375k #103

So for this complex we are not far away from 2004.

I know it is only a single data point.

[sdduuuude]

Oh, and a 10% drop, followed by another 10% drop, followed by a 20% drop and another 20% drop and another 20% drop is only a 59% drop, not an 80% drop, but what’s 20 percentage points?

100 * .90 = 90
90 * .90 = 81
81 * .80 = 64.8
64.8 * .80 = 51.84
51.84 * .80 = 41.472

100 – 41.472 = 58.52%

[powayseller]

I’m not using CR’s numbers in my analysis, but merely quoting what he wrote. This downturn will be much worse, so I upped it.

But instead of quoting 60% vs. 80%, I would like to hear your data on why house prices are NOT down 10% so far, or whatever percentage it is to be back at 2004 levels.

[rankandfile]

Sdduuuuuuuuuuuuuuuude, you play a good game of pointing out flaws in analysis, but where’s your line in the sand? It’s easy to play armchair quarterback and critique every little nuance in one’s statement. At least Powayseller has enough balls to come in here and make a claim and do her best to support it. Ok, ok, so she didn’t use the Case-Schiller Methodology that you recommend. Whoopdy-frickin-do to you for citing that. The point here is that you can readily point out a problem, but what’s YOUR solution? What’s your prediction of where the prices will be?

I think you’ll find that the Rankandfile Simplified Index (RSI= (Current prices/2)= 50% drop) will prove to be quite accurate in the not-too-distant future. 😉

[equalizer]

sddude

The market is weak. There is a home on my block on sale for nearly 6 months now. started 950-975, then 900-950, now listed 850-900K for last 2+ months. 850K was value 1.5 years ago. Still not sold. 2 year old house in north san diego, good house. So if someone wants to sell similar house within a few months, they would have to list 800k.
With so much inventory, your house has to be perfect or at a big (10%)discount.

[sdduuuude]

sdrealtor

Thanks for this post. I value your “in the field” numbers but I also value the Case-Schiller index, which only show us down 3% or so. Those are county-wide numbers, though. Why so different? Was North County’s boom a bit more aggressive than the rest of the county?

It is certainly important to distinguish between “early 2004” and “late 2004” prices, thats for sure. The peak was maybe 8 or 10 percent up from late 2004, and up over 30% from early 2004.

[PerryChase]

I’m with you Rankandfile. The 50% drop prediction sounds most reasonable to me.

[sdrealtor]

Great example of what Jim was referrring to! Seller thinks house is worth 975K. House sold for 850K 1.5 years ago and may at one time have been worth close to 900 but it will sell for 800 now. A 5 to 10% drop from the peak but 20% below sellers unrealistic expectation.

[rankandfile]

sdrealtor, you probably have the most credibility of anyone on this forum, and not just because you are a Phil Hendrie fan. You call it like it is, and that will serve you well. Please post your email sometime…I’d like to work with you if/when we decide to buy out here.

[sdduuuude]

I have a couple analyses on this forum – many months ago.

That line moves between %16% and 25% depending on my mood and the analysis I do. I’m at about 22% now.

Also, I make it very clear that my prediction is for actual peak-to-trough median price reductions in SFRs. Many who post predictions will say “50%” OK. 50% what? 50% real? 50% actual? The biggest drop in any zip code is 50%? The average? Condos? SFR? What? Be clear.

In 5 years, some will go find 3 houses that dropped by the exact amount they predicted and say “see, I told you” when in fact those examples don’t behave anywhere near the median price.

Also, some will predict a 50% drop in actual prices and mean real prices (or vice-versa), forgetting to adjust for inflation, which is significant when discussing a 7 year outlook in an environment where you hear the word “hyperinflation” on occasion.

So, when I draw a line in the sand, you know where that line is and you know when it has been crossed or not.

I don’t mind “gut feel”, “SWAGS” (Stupid, wild-ass guesses), and the newly founded “RSI”, as long as they are presented as such.

What I don’t like is to see numbers and analysis tuned to meet SWAGS that were formulated before the analysis began.

[sdduuuude]

rankandfile

P.S. The error of stating 80% when the numbers calculate to %59 is a bit more than a “nuance”

[PerryChase]

How about price per sq ft in a certain zip code to calculate up or down %? We could look at price per sq ft for SFR and condos.

If people buy bigger houses then the median price may not reflect price movements accordingly.

[rankandfile]

OK…that’s more like it. You could very well be correct in your prediction. I know my statements don’t carry as much weight as others because I just don’t have the time to do all the legwork necessary to get a true apples-apples comparison…which, technically speaking, is nearly impossible due to all the permutations that occur from one home to the next. Do appraisers take all these permutations into account when figuring their prices? Or do they simply rely on comps for the most part?

Now that we are on the subject of being technically sound in our analysis, I personally think that comps are a bunch of bunk. Yes, they might be able to factor in a majority of factors, but they do not account for all of them. I come across as a loose cannon sometimes because I am torn between the need to use data to substantiate claims, yet there seems to be no truly reliable way to model home prices over a given period of time. There are simply way too many variables to consider, not to mention the human variables. A lagging median price indicator, an obfuscated MLS database, a realty/mortgage banking industry with direct interest in higher prices, and a government/media complex that indirectly benefits from higher home prices does not equate to a reliable body of data.

In the immortal words of the priest from Coming to America, If being a conspiracy theorist is wrong, I don’t want to be right…or something like that.

[sdrealtor]

Rankandfile,
I think you’ve realized what I have after taking all the analytical skills in the world and realizing that it is a much more complex matter than people understand. Throw in poorly compiled, self reported data and you end up with one fine mess. The truth is, it doesnt matter much what the numbers are as it’s more important which way the numbers are going and at what velocity.

Right now they are going down and the pace picked up the last 4 weeks. This appears to be due to falling demand at the end of the Summer and seller’s concessions that’s its over. Something to watch closely is inventory as we will find out who needs to sell in the next couple months. Those testing the waters should be on the sidelines by October with the real sellers left.

As for how to measure the decline? If you ask me, I’d say it’s going to be pretty easy to say how much we are down after all is said and done. I believe everything will be down fairly uniformly once we hit bottom and settle there for a year or so. Everything moves in relation to each other. As one area gets less expensive, the neighborhood below it must react and the prices fall there. The neighborhood above it needs to react also so it makes sense as a move up or doesnt appear to be enough for the money to the relo client.

I loved the whole price band months of inventory stuff by the other realtor. While I’m sure it provides value if you follow it over time, I chuckled wondering if it tells the sponsor that his home is in the best slot. Funny how bias can be introduced into any analysis without realizing or intending to do so.

[sdrealtor]

sdduuude
Its hard to call anything the peak. I saw people sell homes in Feb/Mar/Apr that were never topped in a neighborhood and even had a few myself like that. There were some higher sales later but that could easily have been due to there not being a sale in that neighborhood for a few months. Remember that was the record low inventory time so there were alot of areas that had no sales. It was a time when if your realtor had enough b*l@s you could ask and get just about anything. To me that was the peak! Peaks that occurred later were mostly due to a lack of sales or not pushing the prices as much as they could have.

[Author]

Posts